Fed Governor Waller: Inflation has fallen sooner than anticipated and due to this fact advocates a half-percentage level lower in rates of interest

Federal Reserve Governor Christopher Waller said on Friday he supported a half-percentage point interest rate cut at this week's meeting because inflation was falling even faster than expected.

Citing recent consumer and producer price data, Waller told CNBC that core inflation (excluding food and energy), the Fed's preferred measure, has been below 1.8% for the past four months. The Fed targets 2% annual inflation.

“That held me back a little bit and I had to say, wow, inflation is coming down much faster than I thought, and that made me say, look, I think 50 [basis points] is the right thing to do,” Waller said in an interview with CNBC's Steve Liesman.

Both the consumer and producer price indices recorded an increase of 0.2% for the month. On a 12-month basis, the consumer price index was 2.5%.

However, Waller said more recent data showed an even sharper downward trend, giving the Fed room to ease further as it shifts its focus to supporting the weakening labor market.

A week before the Fed meeting, the markets were largely expecting a cut of 25 basis points. One basis point corresponds to 0.01 percent.

“The point is that we have room to move, and that's what the committee is signaling,” he said.

The Fed's move to cut the benchmark interest rate by half a percentage point, or 50 basis points, pushed the benchmark rate to a range between 4.75% and 5%. Along with the decision, individual officials indicated that further cuts of half a percentage point would likely come this year and a full percentage point in 2025.

Fed Governor Michelle Bowman was the only member of the Federal Open Market Committee to vote against the cut. She instead favored a smaller cut of a quarter of a percentage point. On Friday, she released a statement explaining her opposition. It is the first no vote by a governor since 2005.

“While it is important to acknowledge that there has been significant progress in reducing inflation, as long as core inflation remains at or above 2.5 percent, I see a risk that the committee's broader policy actions could be interpreted as a premature declaration of victory on our price stability mandate,” Bowman said.

Regarding the future development of interest rates, Waller indicated that there are several possible scenarios, each of which depends on the development of economic data.

Following Waller's speech, there were price shifts in the futures markets. According to CME Group's FedWatch, traders are now calculating a 50:50 chance of a further half-percentage point cut at the meeting on November 6 and 7.

“I was a big proponent of big rate hikes when inflation was rising much, much faster than we all expected,” he said. “I would feel the same way on downsides to protect our credibility in maintaining a 2% inflation target. If the data gets weak and continues to stay weak, I would be much more willing to cut rates aggressively to get inflation closer to our target.”

The Fed will get another look at inflation data next week when the Commerce Department releases the August report on the personal consumption expenditures price index, the central bank's preferred gauge. Chairman Jerome Powell said Wednesday that Fed economists expect the index to show inflation at 2.2% annually, up from 3.3% a year ago.